How Will Stock Markets and the Economy React to the Election?

by | Nov 24, 2020 | Financial Planning

An already uncertain market due to the pandemic, combined with uncertainty following the election, can be intimidating for savers. Control of Congress may not be determined for months, due to runoff elections here in Georgia, and that may be enough for some to avoid the market altogether. However, those who are not invested can miss out on the market’s best days. This is especially the case in an economy that has, thus far, been recovering strongly from the sharp recession earlier this Spring.

The History of Market Performance During and After Elections

Going back to 1937, when Presidential elections resulted in a single party controlling the White House and Congress, the first year of those administrations saw positive stock market returns 74%** of the time. On the other hand, when Congress and the Presidency were split between parties, the first year returns for the stock market were even more likely to be positive, at 78%** of the time. Split control of the government is a likely scenario for 2021, so this could be good news for investors.

Since 1930, the average performance for the Dow Jones Industrial Average in the first year after a Presidential Election has been 10.0%**, while the average performance during an election year has been lower at 5.4%**. These numbers show a strong increase in stock market returns in years that follow an election, on average.

**Past performance is no guarantee of future results.

Cut Political Noise from Financial Decisions

Watching the stock market react to an election year can make your head spin. Trying to guess the makeup of Congress and how that will impact policy shouldn’t be your focus. Instead, long-term savers should try to take the politics out of their financial decisions and focus on their strategy.

By looking at a chart of market returns over time, you will see there are many fluctuations over short intervals. However, it is also obvious that the market generally trends upward over the long-term. So instead of focusing on political decisions, look for changes in the market that can impact long-term growth, such as encouraging COVID-19 vaccine news, and stick with your financial plan.

Focus on What You Can Control with Your Finances

Lots of questions will be asked about how the branches of Congress and the President will cooperate in the coming years. After all, there is still plenty of uncertainty surrounding COVID-19 stimulus and the future of Trump-era tax cuts.

History has taught us that markets hate uncertainty. So, keep an eye on these issues, but don’t let them derail your strategy. If you’re expecting uncertainty, it can be a good idea to have cash available in your account. This way you can be ready when buying opportunities arise.

Keep in mind, politics often involve the entire world’s problems, so these issues are regularly amplified by the media. This can lead investors to make rash decisions with their investments, even when the news isn’t that impactful for their portfolio.

Seek the Help of a Financial Advisor to Cut Through Political Stress

It’s important to frequently revisit your financial goals, but be sure to speak with an experienced financial advisor before you make any significant changes to your plan. Remember, not all financial advisors are created equal, so do your homework.

At Brookstone Wealth Management, we have the resources and experience to help you cut through the political clutter. That way, you can make educated decisions and protect your financial future.

Contact Brookstone Wealth Management to schedule a meeting.

If you are looking for an advisor, or if you aren’t happy with your current situation,  give Brookstone Wealth Management a call. We have a process to develop your Financial Fingerprint™ – a financial plan that is quick to assembleeasy to understand, and simple to modify as circumstances change. After all, we believe it takes more than a return on investment to achieve financial success.

At Brookstone Wealth Management, we offer a complete suite of Wealth Management services, supported by an experienced team of financial and legal professionals. We are happy to meet with you virtually or in person, depending on your situation and preferences, so contact Tami McDonald at Brookstone Wealth Management today.